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"With an average score of 49, we’re seeing people fall near the midpoint of the index, which means they’re doing some things well but there’s also some room for improvement"

SAN FRANCISCO--(BUSINESS WIRE)--Americans are split on their definitions of wealth, according to new
research from Charles Schwab, with some describing wealth as a specific
sum of money and others describing it more as a state of mind.

When asked to define wealth, the top five sentiments among 1,000
Americans are:

Having a lot of money (27 percent)

Enjoying life’s experiences (24 percent)

Being able to afford anything they want (22 percent)

Living stress-free and having peace of mind (19 percent)

Having loving relationships with family and friends (12 percent)

When asked to express how much is required to be considered “wealthy” in
America, survey respondents say it’s an average of $2.4 million, or
nearly 30 times the actual median net worth of U.S. households according
to the U.S. Census Bureau.¹

However, when asked to compare two opposing ideas of wealth at a more
personal level, Americans lean into things that money can’t buy:

Sixty-five percent equate wealth with having good physical health vs.
having lots of money (35 percent)

Fifty-eight percent say wealth is about having gratitude vs. having
money (42 percent)

Fifty-six percent believe wealth is about building community vs.
working on one’s career (44 percent)

“Wealth is often thought of as a lofty, unattainable number that doesn’t
apply to most of us, but that’s an old-fashioned notion that needs to be
retired,” said Terri
Kallsen, executive vice president and head of Schwab Investor
Services. “It doesn’t matter whether you have a lot or a little—what
matters is that you think about the money you have as your wealth, and
that you pay attention to it. Being engaged is the only way to reach
your personal goals.”

“Not every investment firm is built to encourage this level of
engagement across investors of all types and sizes. We’ve watched as
many firms set their account minimums high and their fees higher, making
it difficult for people to access professional planning and advice,”
said Kallsen. “As Americans’ definition of wealth evolves, the industry
needs to modernize its approach to find new ways to deliver good value
and a great experience to a broader population.”

Introducing the Modern Wealth Index

To help track how well Americans across the wealth spectrum are
planning, managing and engaging with their wealth, Schwab developed the Modern
Wealth Index. The Index, which is grounded in Schwab’s Investing
Principles, assesses Americans across four factors: 1) goal setting
and financial planning, 2) saving and investing, 3) staying on track,
and 4) confidence in reaching financial goals.

On a scale of 1-100, Americans received an average Modern Wealth Index
score of 49. Among the four factors of the Index, Americans score
highest when it comes to confidence in reaching their goals, while the
actions it takes to stay on track—such as checking account balances and
rebalancing investments—was the largest drag on the overall index score.

“With an average score of 49, we’re seeing people fall near the midpoint
of the index, which means they’re doing some things well but there’s
also some room for improvement,” said Kallsen.

Average Modern Wealth Index score: 49

Goal setting and

financial planning

Saving and investing

Staying on track

Confidence in reaching

financial goals

43

52

24

64

Overall and sub-factors scores are each on a scale of 1-100.

Written financial plans unlock positive behavior

According to the Index, those who put pen to paper with written
financial plans are more confident, more engaged with their wealth and
demonstrate more positive saving and investing behaviors than average
Americans, scoring above the national overall index average of 49 with a
score of 79. They also score above the national average across all four
sub factors of the index:

Goal setting and financial planning: 100

Saving and investing: 67

Staying on track: 46

Confidence in reaching financial goals: 100

There is also significant difference in specific behaviors when
comparing those with a written plan to those without:

Those with a written

plan compared to

…those without it

Increased 401(k) contribution in the past year

54%

33%

Rebalanced 401(k) portfolio

50%

24%

Stick to a monthly savings goal

40%

19%

Have an emergency fund

45%

26%

Aware of fees in brokerage account

83%

67%

According to Schwab’s survey, just 24 percent of Americans say they have
a financial plan in writing. “We know planning is one of the most
fundamental factors of successful investing,” notes Kallsen. “But there
is a clear need to make planning and professional advice more accessible
and engaging for people, because not enough Americans have written
financial plans. It’s one of the most important issues for our industry
to address today.”

Millennials are more planning-oriented than older generations

Millennials score higher than the national average in three out of the
four index categories. In comparing generations, millennials model some
of the best financial habits, with an overall Index score of 51, higher
than Generation X (49) and baby boomers (45). In particular, millennials
are:

More likely to be focused on planning

More likely to regularly monitor their financial accounts

More knowledgeable about the fees they pay

More confident they will reach their financial goals

According to the Modern Wealth Index, more than a third of millennials
(34 percent) say they have a written financial plan compared to far
fewer Gen X (21 percent) and boomers (18 percent). Impressively, nearly
three-quarters (72%) of millennials developed their written financial
plans with professional help, and 91 percent of them review or update
their financial plans at least annually.

Short-term behavior undermines long-term planning for millennials

While millennials are more likely than older generations to have a plan
and be engaged with their finances, the Modern Wealth Index reveals a
gap in their more immediate money habits:

For example:

Sixty percent of millennials say they spend more than $4 on coffee

Seventy-six percent say they buy the latest electronic gadget

Seventy percent admit to buying clothes they don’t necessarily need

Six in ten lack a monthly savings goal (62%) or a household budget
(58%)

Less than a third (30%) have built an emergency fund to cover at least
three months of living expenses

Millennials also have room for improvement when it comes to debt
management. Two-thirds (67%) say they don’t always make their student
loans and mortgage payments on time, and nearly seven in 10 (69%) say
they have credit card debt.

As millennials age, their habits appear to improve, however. Among older
millennials in their thirties, nearly 60 percent (57%) say their
financial health is better than it was five years ago and nearly half
(47 percent) say they have a household budget compared to those in their
20s (35 percent) who admit they do not.

“The positive behavior changes we’re seeing among older millennials are
encouraging. With their focus on planning, they’re already poised for
success,” said Kallsen. “Much like the generations before them,
millennials will advance in their careers, start families, and
accumulate wealth – all factors that will lead to even more financial
engagement.”

About the survey and Modern Wealth Index methodology

The Modern
Wealth Index, developed in partnership with Koski Research and the
Schwab Center for Financial Research, is based on Schwab’s Investing
Principles and composed of 60 financial behaviors and attitudes –
each assigned a varying amount of points depending on their importance.
The Index broadly assesses Americans across four factors: 1) goal
setting and financial planning, 2) saving and investing, 3) staying on
track, and 4) confidence in reaching financial goals. Based on the total
number of points received, respondents were indexed on a 1-100 scale for
each of the four factors and an overall score.

The online survey was conducted by Koski Research from April 12 to April
20, 2017, among 1,000 Americans aged 21 to 75. Quotas were set so that
the sample is as demographically representative as possible. The margin
of error for the total survey sample is three percentage points.

About Charles Schwab

At Charles Schwab, we believe in the power of investing to help
individuals create a better tomorrow. We have a history of challenging
the status quo in our industry, innovating in ways that benefit
investors and the advisors and employers who serve them, and championing
our clients’ goals with passion and integrity. More information is
available at www.aboutschwab.com.
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and LinkedIn.

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On a scale of 1-100, Americans received an average Modern Wealth Index score of 49. Among the four factors of the Index, Americans score highest when it comes to confidence in reaching their goals, while staying on track was the largest drag on the overall index score. (Graphic: Business Wire)